Oliver Bugarin 4 0 0 4 min to read

Experts predict that Philippine foreign reserves will recover.

At USD98.976 billion as of the end of August 2022, the nation’s foreign reserves hit a fresh two-year low. However, an economist indicated that they are still significant support for the local currency.

According to Rizal Commercial Banking Corporation (RCBC) Chief Economist Michael Ricafort, who cited Bangko Sentral ng Pilipinas (BSP) data released on Wednesday, the decrease in gross international reserves was caused by the government’s net payments on its foreign debt, a potential intervention by the central bank in the foreign exchange market, and a lower value of the central bank’s gold holdings due to the decline in the price of this commodity on the global market (GIR).

However, he said in a report, “GIR is still equivalent to 8.3 months of imports, or still far above the minimum international criterion of three to four months, and could therefore potentially provide stronger buffer/support/cushion on the peso exchange rate vs. any speculative attacks.”

The country’s GIR level dropped from USD99.84 billion in August of the previous year for the sixth consecutive month. The amount was greater at USD107.96 billion a year ago.

According to Ricafort, the nation’s foreign reserves decreased by USD9.8 billion from USD108.79 billion as at the end of 2021.

He continued the weakening peso in recent months, and the drop in the GIR was somewhat associated.

Ricafort claimed that on September 7, the local unit experienced a new intraday record low of 57.33.

The peso has fallen to a low of 57 versus the US dollar, its lowest level since the fourth quarter of 2004.

Analysts attributed this to the US dollar’s general strength, which was partly brought on by the Federal Reserve’s main interest rates continuing to rise.

Despite the country’s GIR declining, Ricafort is confident about its rebound in the upcoming months due to the yearly increases in remittances given by Filipinos working abroad over Christmas.

He also mentioned the growth of business process outsourcing income, foreign direct investments, and tourism revenues, the latter of which was aided by the country’s reopening to foreign visitors.

Consequently, he continued, “still relatively high GIR at USD99 billion could still strengthen the country’s external position, which is a key pillar for the country’s continued favorable credit ratings for the second consecutive year, mostly at 1-3 notches above the minimum investment grade, a sign of resilience despite the Covid-19 pandemic that led to downgrades in other countries around the world.”

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